Banks' net to plunge 11 pc QoQ: StanChart Securities

MUMBAI: Led by state-run banks which are set to report increased strains on asset quality, the banking sector is set to see profits decline by 11 percent in Q1 sequentially but a 43 percent spike in the same on an annualised basis, says a StanChart Securities report.

The state-run banks will see increased strains on their asset quality and more loan recasts pulling down their first quarter profit by 14 percent quarter on quarter (QoQ), though there will a full 53 percent spike in post-tax profit on an annualised basis, says the report.

With a comparatively better show by the private sector banks, the report says overall earnings for banks will see a likely decline of 11 percent quarter on quarter (QoQ) but an annualised growth of 43 percent.

The report further says though private sector banks remain better placed in terms of overall asset quality, they too will see stress on their assets with the overall profit declining by 5 percent QoQ and a growth of 30 percent year on year (YoY).

"We expect net profit for state banks to grow 53 percent year-on-year (primarily due to the low base effect for SBI) and decline 14 percent quarter on quarter in the first quarter of the fiscal.

"We expect net profit for private banks to grow 30 percent YoY and decline 5 percent QoQ. Overall earnings for banks will likely grow 43 percent YoY and decline 11 percent QoQ," the report titled 'India Financial-Q1FY13-Stress loans in focus again' prepared by Mahrukh Adajania and Rounak Agarwal of StanChart Securities said here today.

The report attributes poor number to flat loan growth, sharp growth in overseas loans due to rupee fall, high trading gains and/or write-back of investment depreciation due to volatility in G-secs and corporate bond yields, pressure on core fee income due to weak corporate activity, lower quarterly net interest margins due to high cost of deposits but no material dip and lower tax rates.